UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period endedSeptember 30, 2010





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _________ to _________





Commission file number:333-150952





China Media Inc.


(Exact name of registrant as specified in its charter)





Nevada

46-0521269(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)





12/F, Block D, Chang An Guo Ji


No. 88 Nan Guan Zheng Street


Beilin District, Xi'an City, Shaan'xi Province


China - 710068


(Address of principal executive offices)





(86) 298765-1114


(Registrants telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes oNo þ





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes oNo o





Large accelerated filer o      Accelerated filer o     Non-accelerated filer o   Smaller reporting company þ





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes oNo þ





APPLICABLE ONLY TO CORPORATE ISSUERS





As ofNovember12, 2010, the registrant had39,750,000 shares of common stock outstanding.











Table of Contents
  PART I – FINANCIAL INFORMATION
2Item 1.  Financial Statements
2Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
3Item 3.  Quantitative and Qualitative Disclosures About Market Risk
5Item 4.  Controls and Procedures
5PART II – OTHER INFORMATION
6Item 1.  Legal Proceedings
6Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
6Item 3.  Defaults Upon Senior Securities
6Item 4.Submission of Matters to a Vote of Security Holders
6Item 5.  Other Information
6Item 6.  Exhibits
6SIGNATURES
7





1




PART I - FINANCIAL INFORMATION


Item 1. Financial Statements





The unaudited interim consolidated financial statements of China Media Inc. (the “Company”, “China Media”, “we”, “our”, “us”) follow. All currency references in this report are to U.S. dollars unless otherwise noted.





China Media Inc.


September 30, 2010


(Unaudited)





Financial Statement Index




Consolidated Balance Sheets as of September 30, 2010 and June 30, 2010 (Unaudited)
F-1Consolidated Statements of Operations for the three  months ended September 30, 2010 and 2009 (Unaudited)
F-2Consolidated Statements of Cash Flows for the three months ended September 30, 2010 and 2009 (Unaudited)
F-3Notes to the Consolidated Financial Statements (Unaudited)
F-4







2




CHINA MEDIA, INC.


Consolidated Balance Sheets


September 30, 2010


(Unaudited)





September 30, 2010


June 30, 2010AssetsCurrent assetsCash

$
208,831


$
47,263Accounts receivable, net of allowance of $36,399 at September 30 and June 30, 2010


1,468,803



1,910,862Total current assets


1,677,634



1,958,125Fixed assets, net


63,605



68,588Intangible assets, net


54,098



55,811Film costs


1,815,488



1,785,939Other Assets


3,259,742



3,055,410Total assets

$
6,870,567


$
6,923,873Liabilities and Stockholders' EquityCurrent liabilitiesAccounts payable

$
103,248


$
180,905Accrued liabilities


12,555



10,303Short term debt


119,440



117,496Due to related parties


6,930



281,645Deferred revenue


223,950



-Total current liabilities


466,123



590,349Stockholders' equityCommon stock, $0.00001 par value, 180,000,000 shares authorized; 39,750,000 and 39,750,000 shares issued and outstanding, respectively


398



398Additional paid-in capital


13,972,839



8,748,246Accumulated other comprehensive income


876,919



483,610Accumulated deficit


(8,445,712
)


(5,267,950
)Total China Media Inc.'s stockholders' equity


6,404,444



3,964,304Non-controlling interest


-



2,369,220Total stockholders' equity


6,404,444



6,333,524Total liabilities and stockholders' equity

$
6,870,567


$
6,923,873





The accompanying notes are an integral part of these financial statements.




F-1




CHINA MEDIA INC.


Consolidated Statements of Operations


(Unaudited)





Three Months Ended

September 30,2010


2009Selling, general and administrative


27,851



24,671Depreciation and amortization expense


8,591



15,600Total operating expenses


(36,442
)


(40,271
)Other income (expense)Interest incomeGovernment subsidies/grants


2,956



-Interest expense






-Net income (loss) before income taxes


(33,485
)


(40,271
)Income taxes


97



-Net income (loss)


(33,582
)


(40,271
)Less: Net income (loss) attributable to non-controlling interest


10,743



15,058Net income (loss) attributable to China Media Inc.

$
(22,840
)

$
(25,213
)Other Comprehensive Income (loss)Net income (loss)


(33,582
)


(40,271
)Foreign currency translation gain(loss)


112,789



(1,182
)Comprehensive Income (loss)


70,207



(41,453
)Less: Comprehensive income attributable to non-controlling interest


25,338



(15,449
)Comprehensive income (loss) attributable to China Media Inc.

$
53,869


$
(25,954
)Net Income (loss) per common share, basic and diluted

$
(0.00
)

$
(0.00
)Weighted average number of shares outstanding- basic and diluted


39,750,000



39,744,141





The accompanying notes are an integral part of these financial statements





F-2





CHINA MEDIA INC.


Consolidated Statements of Cash Flows


(Unaudited)





Three Months Ended

September 30,2010


2009CASH FLOWS OPERATING ACTIVITIESNet loss

$
(33,582
)

$
(40,271
)Adjustments to reconcile net loss to net cash provided byOperating activities:Contributed rent






2,925Amortization expense


2,956



1,215Depreciation expense


5,635



14,385Changes in operating assets and liabilities:Accounts receivable


473,674



144Accounts payable


(80,650
)


61Accrued liabilities


2,082



(325
)Deferred Revenue


223,950



-Net cash provided by (used in) operating activities of operations


594,064



(21,866
)CASH FLOW INVESTING ACTIVITIESCash paid for purchase of fixed asset


274



-Cash paid for other assets


(153,778
)


-Loans made to others


-



(3,370,190
)Net cash used in investing activities


(153,504
)


(3,370,190
)CASH FLOW FINANCING ACTIVITIESPayments to (Proceeds from) due to related parties


(279,375
)


21,980Net cash provided by (used in) financing activities


(279,375
)


21,980Effect of exchange rate changes on cash


383



(89
)NET CHANGE IN CASH


161,568



(3,370,165
)CASH AT BEGINNING OF PERIOD


47,263



3,375,449CASH AT END OF PERIOD

$
208,831


$
5,284SUPPLEMENTAL INFORMATION:Interest paid

$
-


$
-Income taxes paid

$
97


$
-


The accompanying notes are an integral part of these financial statements




F-3




CHINA MEDIA INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


September 30, 2010





1. Organization, Basis of Presentation and Significant Accounting Policies





The condensed consolidated financial statements as of September 30, 2010 and for the three months ended September, 2010 and 2009 are unaudited. However, in the opinion of management, such financial statements include all adjustments (consisting solely of normal recurring adjustments) necessary for the fair statement of the financial information included herein in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Results of operations for interim periods are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in China Media’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009. The balance sheet at June 30, 2010 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.





Share Exchange





On July 7, 2009, Fullead Overseas Limited, a company incorporated under the laws of the British Virgin Islands (the “Buyer”), entered into a share purchase agreement (the “Share Purchase Agreement”), pursuant to which the Buyer agreed to purchase a total of 32,500,000 shares of the Company’s common stock, representing 85% of the total issued and outstanding shares of common stock of the Company on a fully-diluted basis. Bin Li, the Company’s Director, is the owner and sole Director of the Buyer.





On September 16, 2009, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with Vallant Pictures Entertainment Co., Ltd., a company incorporated under the laws of the British Virgin Islands (“Vallant”) and Bin Li, the Company’s Director and the former sole shareholder of Vallant.  According to the terms of the Share Exchange Agreement, the Company agreed to acquire the sole issued and outstanding common share of Vallant from Bin Li in exchange for 7,000 shares of the Company’s common stock.





China Media Inc. (the “Company”) formerly Protecwerx Inc., was incorporated in the State of Nevada on October 16, 2007. On November 30, 2009, the Company closed the transactions contemplated by the Share Exchange Agreement and acquired Vallant Pictures Entertainment Co., Ltd., a company incorporated under the laws of the British Virgin Islands (“Vallant”) as its wholly owned subsidiary.  Vallant has entered into a series of contractual obligations with Xi’An TV Co., Ltd., a company incorporated under the laws of the People’s Republic of China (“Xi’An TV”) that is engaged in the business of producing and developing television programming for the Chinese market, as well as the holders of 62.61% of the voting shares of Xi’An TV.





We had 39,743,000 shares of our common stock issued and outstanding before the closing of the transactions contemplated by the Share Exchange Agreement.  Upon the closing of the transactions, we issued 7,000 shares of our common stock to Bin Li, our Director and the former sole shareholder of Vallant.  Mr. Li is the beneficial owner of 2,000,000 additional shares of our common stock.  The 7,000 shares were issued in reliance upon an exemption from registration pursuant to Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”).  Currently, there were 39,750,000 shares of our common stock issued and outstanding.





The share exchange is being accounted for as a reverse merger, since the former sole shareholder of Vallant, Bin Li, acquired the majority of the Company’s common stock with the aim of completing the share exchange with Vallant, and Vallant is deemed to be the accounting acquirer in the reverse merger.  Consequently, the assets and liabilities and the historical operations that will be reflected in the consolidated financial statements for periods prior to the Share Exchange Agreement will be those of Vallant and will be recorded at the historical cost basis.  After the completion of the Share Exchange Agreement, the Company’s consolidated financial statements will include the assets and liabilities of Vallant, the historical operations of Vallant and its subsidiaries from the closing date of the Share Exchange Agreement.




On September 17, 2010, Vallant and the holders of 100% of the voting shares of Xi’An TV amended the various consulting agreements and equity pledge agreement dated December 28, 2009. According to the amended agreements, Xi’An TV will provide Vallant with 100% of its income. Xi’An TV shareholders now pledged 100% of their equity interests in Xi’An TV to Vallant to guarantee Xi’An TV’s performance of its obligations under the Business Operations Agreement. Upon executing these agreements, Xi’An TV is considered a 100% owned VIE by Vallant.





Principles of Consolidation





The consolidated financial statements include the accounts of the Company and Xi’An TV, which is a variable interest entity with the Company as the primary beneficiary. In accordance with United States generally accepted accounting principles (“GAAP”) regarding “Consolidation of Variable Interest Entities”, the Company identifies entities for which control is achieved through means other than through voting rights (a "variable interest entity" or "VIE") and determines when and which business enterprise, if any, should consolidate the VIE. The Company evaluated its participating interest in Xi’An TV and concluded it is the primary beneficiary of Xi’An TV, a variable interest entity. The Company consolidated Xi’An TV and all significant intercompany transactions and balances have been eliminated.





F-4





Use of Estimates





The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of ultimate revenues and ultimate costs of film and television product, estimates of product sales that will be returned and the amount of receivables that ultimately will be collected, the potential outcome of future tax consequences of events that have been recognized in the Company’s financial statements and loss contingencies. Actual results could differ from those estimates. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or results of operations will be affected. Estimates are based on past experience and other assumptions that management believes are  reasonable under the circumstances, and management evaluates these estimates on an ongoing basis.





Earnings (loss) Per Share





The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At September 30 and June 30, 2010, respectively, the Company had no common stock equivalents that could potentially dilute future earnings per share.




Recent Accounting Developments





In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of VIEs.  This amendment requires an analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. The amendment requires an ongoing reassessment and eliminates the quantitative approach previously required for determining whether an entity is the primary beneficiary. This amendment is effective for our fiscal year beginning July 1, 2010.  We adopted the amendment July 1, 2010 and it did not have any impact on the Company’s financial position or results of operations.





2. Related Party Transactions





Mr. Dean Li, President and General Manager, had advanced approximately $6,930 to the Company during the three month period ended September 30, 2010. The shareholder loan is free of interest with no maturity date.


The Company leased an office space from a related party with a monthly rent of approximately $1,000. The rent for the three month period ended September 30, 2010 was approximately $3,000.





3. Other Assets





The Company entered into a Letter of Intent on January 28, 2010 with Nantong Oriental Science and Education Investment Co., Ltd. (“Nantong”) to set up a training school located in Haimen, China. Per the letter of intent, the Company will contribute RMB 30,000,000 and Nantong will contribute its land use right with a determined value of RMB 20,000,000.  60% of the profits and risks from the project shall be allocated to the Company. The term of this Letter of Intent is one year started from the signing date. Both parties of this agreement will jointly operate and manage this project once it is approved and established. As of September 30, 2010, the Company has contributed $3,259,742. Currently, the project is waiting for the government official’s approval and hasn’t started the operation. Management believes it will obtain the government’s approval within the next six months.





F-5




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations





Forward Looking Statements





This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.





While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.





Reverse Merger





On November 30, 2009 we completed the acquisition of Vallant Pictures Entertainment Co., Ltd. (Vallant) through the issuance of 7,000 shares of our common stock in a share exchange transaction.  The acquisition was accounted for as a reverse merger due to a number of transactions associated with the acquisition of Vallant, including the acquisition of 32,500,000 shares of our common stock by Fullead Overseas Limited, which resulted in a change of control and a change of business.  Due to the accounting treatment of the reverse merger, this quarterly report will be the final financial statement disclosure which will reflect our financial condition prior to the closing of the acquisition of Vallant.





Starting with the periodic report for the quarter in which the share exchange was completed, we will file annual and quarterly reports based on the June 30 fiscal year end of Vallant.  Such financial statements will depict the operating results of Vallant, including the acquisition of China Media Inc., from Vallant’s inception on May 23, 2007.





Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.





Results of Operations





Three months ended September 30, 2010 compared to three months ended September 30, 2009





Our results of operations are summarized below:





Three Months Ended

September 30, 2010

($)


Three Months Ended

September 30, 2009

($)Revenue

Nil


NilCost of Revenue

Nil


NilExpenses


36,442



40,271Net Loss


(33,582
)


(40,271
)Net Loss per Share - Basic and Diluted


(0.00
)


(0.00
)Weighted Average Number Shares Outstanding - Basic and Diluted


39,750,000



39,744,141





We had no sales for the three months ended September 30, 2010 and 2009.





For the three months ended September 30, 2010 we incurred a net loss of $33,582. During the same period in 2009 we incurred a net loss of $40,271. Our net loss per share did not change during these periods at $Nil per share.  Our total operating expenses for the three months ended September 30, 2010 were $36,442. During the same period in 2009 our operating expenses were $40,271.





3





Liquidity and Capital Resources





As of September 30, 2010 we had cash of $208,831 in our bank accounts and a working capital surplus of $1,211,511.





For the three months ended September 30, 2010, we had net cash provided by operating activities of $594,064, compared to net cash used in operating activities of $21,866 during the same period in 2009.





During the three months ended September 30, 2010, we had net cash spending of $153,504 on investing activities of, compared to net cash spending of $3,370,190 on investing during the same period in 2009.





During the three months ended September 30, 2010, we used net cash of $279,375 in financing activities, compared to net cash received of $21,980 from financing activities during the same period in 2009.





Our cash level increased by $161,568 during the three months ended September 30, 2010.





We anticipate that we will meet our ongoing cash requirements by retaining income as well as through equity or debt financing.  We plan to cooperate with various individuals and institutions to acquire the financing required to produce and distribute our products and anticipate this will continue until we accrue sufficient capital reserves to finance all of our productions independently.





We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements.  We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any private placement financings.  If we are not able to successfully complete any private placement financings, we plan to cooperate with film and television producers or obtain shareholder loans to meet our cash requirements. However, there is no assurance that any such financing will be available or if available, on terms that will be acceptable to us.  We may not raise sufficient funds to fully carry out our business plan.





Off-Balance Sheet Arrangements





We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.





Inflation





The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.





Audit Committee





The functions of the audit committee are currently carried out by our Board of Directors, who have determined that we do not have an audit committee financial expert on our Board of Directors to carry out the duties of the audit committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the audit committee or otherwise perform audit committee functions outweighs the benefits of having a financial expert on the audit committee.





4





Item 3. Quantitative and Qualitative Disclosures About Market Risk





Not applicable.





Item 4. Controls and Procedures





Disclosure Controls





We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure.





As of September 30, 2010, the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president and chief executive officer (who is acting as our principal executive officer) and our chief financial officer (who is acting as our principal financial officer and principle accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report.





Changes in Internal Control





There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





5





PART II - OTHER INFORMATION


Item 1. Legal Proceedings





We are not aware of any legal proceedings to which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds





None.





Item 3. Defaults Upon Senior Securities





As a “smaller reporting company”, we are not required to provide the information required by this item.





Item 4. [Removed and Reserved]





Item 5. Other Information





None.





Item 6. Exhibits





ExhibitNumber
ExhibitDescription31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 200232.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002





6





SIGNATURES





Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





China Media Inc.(Registrant)/s/ Dean LiDate: November 15, 2010
Dean LiPresident, Chief Executive Officer(Principal Executive Officer)/s/ Ying XueDate: November 15, 2010
Ying XueChief Financial Officer(Principal Financial Officer and Principal Accounting Officer)




7